The state of the Luxembourg’s welfare state

The effects of the crisis on a corporatist model shifting to a universalistic model

Claudia Hartmann-Hirsch

Luxembourg was able to develop, enlarge and improve its corporatist welfare system with Scandinavian standards, creating one of, if not the most substantial regime in the EU/OECD. Several aspects are outstanding: expansion and improvement took place over the last two decades; important reserves for the pension insurance allowed replacement rates being on top within OECD countries; corporatist elements had been reduced in favour of a higher impact of the State; defamilzation took place, thus a significant recalibration. There is no experience of cutbacks or significant cost containment measures leading to losses and a higher responsibility for the insured.
The question is, how did Luxembourg manage to increase and improve its welfare offer, while other developed countries have had to cutback since the 1970s? And what was the impact of the financial crisis on welfare policies up to the end of 2009.
Luxembourg has the most regulated labour market within OECD, but also the most diversified in terms of migration and cross border movements. Two factors are commonly considered putting welfare systems under pressure: globalisation and ageing effects. Luxembourg avoided the last one via its permanently rejuvenating immigration and cross border movement: age- and family-memberdependency ratios are extremely low for cross border commuters compared to those of residents. The extremely transnationalised labour force might be considered as an implicit „globalising‟ answer. This small nation-state used its sovereignty taking advantage of the imbrication of national and transnational (EU) law: crossers contribute fully, but are not fully entitled to benefits. Immigration is sometimes considered to be a threat to the sustainability of welfare schemes; in Luxembourg however immigrants and crossers were the main factors for expansion.


Hartmann-Hirsch, C. (2010). The state of the Luxembourg’s welfare state: The effects of the crisis on a corporatist model shifting to a universalistic model (Working Papers du CEPS/INSTEAD Nr. 44). Differdange. Centre d’études de populations, de pauvreté et de politiques socio-économiques (CEPS/INSTEAD).

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